AAPL: New Users Still Drive iPhone Sales, Says Bernstein

By Tiernan Ray

Bernstein Research’s Toni Sacconaghi today joins the crowd of those mulling through the prospects for Apple‘s (AAPL) iPhone 5 sales since the device went on sale three weeks ago.

Saccaonghi writes that investors have asked him how important upgrades are to sales of the iPhone.

In fact, contrary to what some investors might suppose, it’s new buyers, not existing iPhone owners, driving the vast majority of iPhone purchases:

Many investors have asserted that the iPhone 5 product cycle will be significant, in part because of the high number of expected upgrades. However, perhaps surprisingly, our analysis indicates that only about 30% of iPhones sold (or 38M) in FY 12 will be from customers upgrading from an older iPhone. The remaining 70% will come from new customers, most of whom have never owned a smartphone before.

Those new buyers are coming in large part — two thirds — from new carriers that Apple added in 2009 and 2010. Only about 8% of new iPhone buyers can be expected to come from new carriers Apple is adding this year, he writes.

Sacconaghi expects new buyers will continue to be important in 2013 and it won’t be till 2014 that upgrades will come to represent half the total iPhone sales. At that point, “recurring revenue and profit will increase” for Apple, he thinks.

As the smartphone market matures, and iPhone growth invariably slows, replacement sales will become an increasing share of total iPhone sales. Our model points to iPhone replacement sales amounting to 40% of total sales in FY 13 and >50% of units in FY 14, and higher thereafter. Once a customer owns an iPhone, repurchase intention is high – 95% according to previous surveys we have done1. We estimate that Apple’s recurring operating profit, includingreplacement iPhones, was 18% in FY 11 and will increase to ~37% in FY 14.

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There are 8 comments

OCTOBER 5, 2012 4:25 P.M.

Anonymous wrote:

Bernstein is blind Apple freak. Bernstein will never admit that it will take Apple at least a year to catch up the Lumia 920´s new innovations. Bernstein should hire more tech experts to work for them or they would lose out
in tech world knowledge and consumer demand knowledge. Bernstein may be satisfied with the new iPhone 5, but it does not mean the whole world would, at least I am switching to Lumia 920 after using 5 versions of iPhone. There you go.

OCTOBER 5, 2012 4:28 P.M.

Ed wrote:

Apple is done. Say bye bye Tim

OCTOBER 5, 2012 5:22 P.M.

Bob wrote:

Cook over his head. Look for 600 next week

OCTOBER 5, 2012 6:08 P.M.

Look all the shorts... wrote:

Trying to take apple down. People are absoulutely waiting in line for the Lumia 920, it's crazy. No they aren't. Nobody is buying the 920, well maybe one person.

OCTOBER 5, 2012 7:28 P.M.

JJ wrote:

Actually, no one is buying the Lumia 920 because it won't be available until November.

It is interesting that some anonymous person thinks Toni Sacconaghi is an Apple freak, since I remember him being lambasted for his low estimates on Iphone sales a couple of years ago.

OCTOBER 5, 2012 9:08 P.M.

Bobo wrote:

Apple products are better quality and user friendly.

OCTOBER 5, 2012 9:09 P.M.

Bobo wrote:

Apple products are superior and user friendly.

OCTOBER 6, 2012 1:50 P.M.

Joey B wrote:

Anonymous you're funny and the Lumina as the next best thing, bet ur betting on Obama as well

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.